Tuesday, March 06, 2012
American stocks have run up hard since the first of the year, but by at least one measure they are still cheap:
Corporate profits that doubled since 2009 have left the Standard & Poor’s 500 Index cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years.We report, you decide. And, well, "sell in May and go away" would have worked great last year, and it may again this year.
Companies in the benchmark gauge of U.S. stocks trade for 14.1 times earnings after advancing 102 percent since March 2009 to an almost four-year high last week, data compiled by Bloomberg show. Valuations are lower than at every 52-week peak since 1989.
Apple is reflective of equities generally. Its market cap is $500 billion, but the PE is “only” 15.1. AAPL needs some growth to justify 15.1, but fixed income pays little and may prove a horrible investment if rates rise.
AAPL has been a momentum play for hedge funds.
But you can also say that AAPL is a value play, like stuffing cash in a mattress. Same reason gold and oil are up. Where else can you go to protect principal when we have an Obama-Bernanke tag team out to fuck the dollar.
Making money this year (and maybe next) will be hard, and most people don't have the time to invest in this market; in my opinion, it's a traders market.
Easy money from the Fed has obviously had a significant impact, and earnings have been very good (propping up the market), but over the long haul the economy needs to grow faster in the macro sense to justify a steady upwad trend. The bond market is a huge challenge too, because at some point it's going to sell off big time and the resulting interest rate growth could cut the legs right out from under any upward stock movement.
I'm buying high quality, dividend paying stocks for my kids accounts (they own some bank preferreds, including my favorite 27% yielding BAC preferred, XOM and GE) and I own MLP's. I'm avoiding REITS, because Basel III may have a dramatic impact on real estate lending, and focusing on energy. Even though I own a software business, I'm avoiding technology, because the market for new sales seems very fragile to me. I'm engaged in long term investing in large cap, storm-proof stocks, in other words--something that's out of favor-- but perfect for young people (like my teenage and twenty something children).
The other huge factor to consider is that the election is going to mean an even more frozen fiscal situation. Not a good thing. We shouldn't forget that the biggest tax increases in the history of the world are presently scheduled to happen next January, between the roll-off of the "Bush tax cuts" and the new "ObamaCare" taxes. And, also, there is sequestration upcoming....The economy will take a huge hit, and unless the GOP takes both houses and the Presidency it's inevitable.
The market will head downward as the year progresses just on these factors alone, no matter what growth looks like over the summer.
I trade USD and Russell futures for a living and haven't held a significant position overnight since late last year.
In this market people should be looking for return OF investment, not return ON investment. Can you even imagine what will happen to Apple when the big boys are start for the exits? Frightening awe-inspiring market moves are surely coming. Lots of lambs are being fatted.